TN 2 (02-08)
SL 60001.681 How Social Security Coverage is Affected in Various Predecessor-Successor Situations
Proper handling of predecessor-successor situations is affected by the State Social Security Administrator’s timely reporting to the Social Security Administration when the situations occur.
With the legal dissolution of the consolidating entities (along with notices of dissolution to remove them from the State’s Section 218 Agreement, see SL 40001.485) and the creation of a new entity, the employee positions of the new entity are new positions, and procedures for implementing new coverage must be undertaken if the entity wants Social Security coverage. The former coverage modifications are no longer applicable, and new modifications are needed to provide Social Security coverage for:
Absolute Coverage Group (positions not covered by a retirement system) – If modifications for the absolute coverage groups are not submitted, then the mandatory Social Security provisions apply to those non-retirement system positions.
Deemed Retirement System (Social Security coverage provided to the retirement system on an entity-by-entity basis) – For those positions under a deemed retirement system, the consolidated entity must first hold a coverage referendum in order to provide Social Security coverage.
Single Retirement System – If the consolidated entity has positions in a retirement system that obtained Social Security coverage as a single retirement system via a single statewide referendum for members of the system in all political subdivisions having positions under that system, those single retirement system positions would retain their Social Security coverage. A referendum would not be necessary. An identification modification (SL 40001.490, Exhibit 6) must be provided to inform the Social Security Administration that the new entity’s positions are to be included under the retirement system’s existing Section 218 coverage modification.
Note: When dealing with any of these consolidation, hybrid consolidation or miscellaneous transition situations, it is extremely important to discern whether the retirement system involved obtained Social Security coverage as a single statewide retirement system or on an entity-by-entity deemed retirement system basis.
The employees of the entity or entities being annexed become the employees of the entity which continues in existence. In this case, the Social Security coverage status of the annexed employees depends on the Social Security coverage status of the entity which continues in existence.
If School District A annexes School District B, the former School District B employees would now be considered School District A employees and would be subject to whatever Social Security coverage that is already in effect for existing School District A employees.
With the legal dissolution of the entity or entities being annexed, the State must submit notice(s) of dissolution to remove them from the State’s Section 218 Agreements; but no new Section 218 coverage modification is necessary for the entity that continues to exist. If the annexation results in a name change for the continuing entity, a notice should be submitted to the Social Security Regional Office concerning the name change (SL 40001.475).
C. Hybrid Consolidation
The positions of the predecessor entities that were folded into the newly created entity are treated in the same way that absolute coverage group, deemed retirement system group, and single retirement system group positions are treated in consolidation situations.
The State must submit notice(s) of dissolution to the Social Security Administration to delete from the State’s Section 218 Agreement the legally dissolved predecessor entity or entities that completely ceased to exist due to the hybrid consolidation.
The coverage modifications for those entities that dissolved are no longer applicable for the absolute coverage and deemed retirement system group positions that were folded into the newly created successor governmental entity. Social Security coverage is obtained for those employees by the following:
1. Absolute Coverage Group
A new coverage modification is needed to provide Social Security coverage for the absolute coverage group, or else, the mandatory Social Security provisions would apply. Note: If the positions that are covered for mandatory Social Security later come under a retirement system, mandatory Social Security coverage would then cease.
2. Deemed Retirement System Group
In order to provide Social Security coverage for positions under a deemed retirement system, the successor entity must first hold a coverage referendum for the deemed retirement system group. Whether Social Security coverage could then be extended to the retirement system group would be dependent upon the type of referendum held and the outcome of the voting.
3. Single Retirement System
If the new entity has positions under a retirement system that obtained Social Security coverage for its members as a single retirement system, a coverage referendum is not necessary; an identification modification must be submitted to the Social Security Regional Office informing the Social Security Administration that the new entity is to be included in the retirement system’s coverage modification.
The employee positions remaining under the predecessor entity that did not totally fold into the newly created entity maintain their coverage under the predecessor entity’s established modifications.
D. Miscellaneous Transition
A Village incorporates itself as a City. Whether the Village’s Social Security coverage carries over to the City appears to turn on the legal status of the new entity vis-à-vis the former. The answer depends on the laws of the State.
If, according to State law, the result of the change is merely a change in the form (SL 60001.680A) but not a change in the substance (SL 60001.680A) of the entity or vice versa – just a change in substance but not a change in form, the same positions that were previously covered under the entity’s Section 218 coverage modification would continue to exist; and the procedures (including referendum) to effect new coverage would not be necessary. Only a name change notification would be required for Social Security Administration record purposes.
However, if according to State law, the result of the change is a change in both the form and the substance of the entity, then the positions involved would be for a new employer; and procedures for implementing new coverage (including a referendum for the retirement system coverage group) would have to be undertaken.